What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-14 · 854 added, 1100 removed, 111 unchanged (95% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

CONDENSED BALANCE SHEETS

and cash equivalents

$ 268,555,837

currencies loaned

currencies held in fund

from sale of equipment

expenses and other current assets

CONDENSED BALANCE SHEET

(in thousands, except share and per share data)

Current assets:

and equipment (net of accumulated depreciation of $ 26,809,659

and $ 21,311,461 , respectively)

Digital currencies, restricted

Cash and cash equivalents

Restricted cash

Digital assets

Other receivable

Prepaid expenses and other current assets

Total current assets

Other assets:

Property and equipment (net of accumulated depreciation of $ 34,356 and $ 16,622 , respectively)

Advances to vendors

Long term deposits

term prepaids

assets (net of accumulated amortization of $ 280,497 at December 31, 2021)

1,235,670,423

$ 1,475,777,433

$ 1,448,415,557

AND STOCKHOLDERS’ EQUITY

Accrued expenses

reserve payable

lease liabilities

Current portion of accrued bond

Long term prepaids

Right-of-use assets

Digital assets, restricted

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

lease liabilities

tax liabilities

Accounts payable

Accrued expenses

Legal reserve payable

Operating lease liabilities

Current portion of accrued interest

Total current liabilities

Long-term liabilities:

and Contingencies

Stockholders’

stock, 0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding at September 30, 2022 and December 31, 2021,

stock, 0.0001 par value;

200,000,000 shares authorized;

116,810,405 and 102,733,273 issued and outstanding at September 30, 2022

and December 31, 2021, respectively

paid-in capital

1,057,798,421

other comprehensive loss

( 432,257,421 )

( 152,229,783 )

Notes payable

Operating lease liabilities

Deferred tax liabilities

Total long-term liabilities

Stockholders’ Equity:

LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 1,475,777,433

$ 1,448,415,557

Preferred stock, 0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Common stock, 0.0001 par value, 200,000,000 shares authorized;

167,259,602 and 145,565,916 issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

accompanying notes are an integral part to these unaudited consolidated condensed financial statements.

2 unchanged sentences

CONDENSED STATEMENTS OF OPERATIONS

Months Ended September 30,

of revenues - energy, hosting and other

( 13,772,555 )

( 5,922,811 )

( 42,974,265 )

( 11,647,457 )

of revenues - depreciation and amortization

( 26,294,842 )

( 4,340,198 )

( 64,881,323 )

( 8,015,801 )

(in thousands, except share and per share data)

Total revenues

Costs and expenses

( 40,067,397 )

( 10,263,009 )

( 107,855,588 )

( 19,663,258 )

and administrative expenses

( 12,352,008 )

( 99,235,984 )

( 39,187,098 )

( 159,411,404 )

( 24,960,000 )

of deposits due to vendor bankruptcy filing

( 7,987,147 )

of digital currencies

( 5,903,891 )

( 6,731,890 )

( 153,045,376 )

( 18,472,750 )

and unrealized gains (losses) on digital currencies held in fund

( 85,016,208 )

on sale of equipment, net of disposals

Cost of revenues

Cost of revenues - energy, hosting and other

Cost of revenues - depreciation and amortization

Total cost of revenues

Operating expenses

( 19,268,739 )

( 63,880,967 )

( 220,999,368 )

( 118,474,126 )

( 46,645,684 )

( 22,436,493 )

( 239,524,970 )

( 47,955,229 )

Impairment of loan and investment due to vendor bankruptcy filing

non-operating income

( 3,752,301 )

( 10,314,659 )

before income taxes

$ ( 81,172,679 )

$ ( 22,175,507 )

$ ( 280,220,350 )

$ ( 47,703,899 )

$ ( 75,422,407 )

$ ( 22,172,567 )

$ ( 280,027,638 )

$ ( 47,700,445 )

loss per share, basic and diluted:

average shares outstanding, basic and diluted:

General and administrative expenses

Impairment of digital assets

Impairment of patents

Realized gains on digital assets and unrealized gains (losses) on digital assets loan receivable

Realized and unrealized gains (losses) on digital assets held within Investment Fund

Total operating expenses

Operating loss

Other non-operating income

Loss from extinguishment of debt

Interest expense

Loss before income taxes

Income tax benefit (expense)

Net loss per share, basic and diluted:

Weighted average shares outstanding, basic and diluted:

accompanying notes are an integral part to these unaudited consolidated condensed financial statements.

2 unchanged sentences

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

the Nine Months Ended September 30, 2021

Other Comprehensive

Stockholders’

as of December 31, 2020

$ 428,242,763

$ ( 116,055,277 )

$ ( 450,719 )

$ 311,744,964

based compensation, net of tax withholding

of common stock, net of offering costs/At-the-market offering

exercised on a cashless basis

exercised for cash

stock issued for cashless exercise of warrants

stock issued for service and license agreements

( 47,700,445 )

as of September 30, 2021

$ 824,612,618

$ ( 163,755,722 )

$ ( 450,719 )

$ 660,416,428

the Nine Months Ended September 30, 2022

Other Comprehensive

Stockholders’

as of December 31, 2021

$ 835,693,610

$ ( 152,229,783 )

$ ( 450,719 )

$ 683,023,381

based compensation, net of tax withholding

of common stock, net of offering costs/At-the-market offering

stock issued for long term service contract

( 280,027,638 )

as of September 30, 2022

$ 1,057,798,421

$ ( 432,257,421 )

$ ( 450,719 )

$ 625,101,962

the Three Months Ended September 30, 2021

Other Comprehensive

Stockholders’

as of June 30, 2021

$ 722,543,196

$ ( 141,583,155 )

$ ( 450,719 )

$ 580,519,285

based compensation, net of tax withholding

stock issued for service and license agreements

( 22,172,567 )

as of September 30, 2021

$ 824,612,618

$ ( 163,755,722 )

$ ( 450,719 )

$ 660,416,428

the Three Months Ended September 30, 2022

Other Comprehensive

the Three Months Ended March 31, 2022

Preferred Stock

Stockholders’

as of June 30, 2022

$ 1,016,722,345

$ ( 356,835,014 )

$ ( 450,719 )

$ 659,447,999

balance, value

$ 1,016,722,345

$ ( 356,835,014 )

$ ( 450,719 )

$ 659,447,999

based compensation, net of tax withholding

of common stock, net of offering costs/At-the-market offering

( 75,422,407 )

as of September 30, 2022

$ 1,057,798,421

$ ( 432,257,421 )

$ ( 450,719 )

$ 625,101,962

balance, value

(in thousands, except share and per share data)

Balance as of December 31, 2021

$ ( 153,603 )

Stock-based compensation, net of tax withholding

Issuance of common stock, net of offering costs/At-the-market offering

Common stock issued for long term service contract

Balance as of March 31, 2022

$ ( 166,454 )

the Three Months Ended March 31, 2023

Preferred Stock

Additional Paid-in

Total Stockholders’

(in thousands, except share and per share data)

Balance as of December 31, 2022

$ ( 840,341 )

Stock-based compensation, net of tax withholding

Issuance of common stock, net of offering costs/At-the-market offering

Balance as of March 31, 2023

$ ( 847,576 )

3 unchanged sentences

CONDENSED STATEMENTS OF CASH FLOWS

Months Ended September 30,

FLOWS FROM OPERATING ACTIVITIES

$ ( 280,027,638 )

$ ( 47,700,445 )

to reconcile net loss to net cash used in operating activities:

and amortization

of prepaid service contract

on sale of assets, net of disposals

( 90,115,824 )

and unrealized losses (gains) on digital currencies held in fund

( 59,410,028 )

of digital currencies

based compensation

of bond issuance costs

of assets related to vendor bankruptcy filing

adjustments from operations, net

in operating assets and liabilities:

( 89,329,986 )

( 90,124,117 )

( 13,629,429 )

expenses and other assets

( 30,583,448 )

( 28,700,147 )

payable and accrued expenses

reserve payable

cash used in operating activities

( 84,242,608 )

( 44,357,170 )

FLOWS FROM INVESTING ACTIVITIES

( 482,097,485 )

( 191,543,484 )

of property and equipment

( 19,829,237 )

( 30,737,688 )

of property and equipment

of digital currencies in fund

( 150,000,000 )

of equity investments

( 43,999,820 )

of digital currencies in investment fund

cash used in investing activities

( 368,072,905 )

( 371,780,457 )

FLOWS FROM FINANCING ACTIVITIES

from issuance of common stock, net of issuance costs

from term loan borrowings, net of issuance costs

of shares withheld for taxes

( 4,688,065 )

received on exercise of options and warrants

cash provided by financing activities

decrease in cash, cash equivalents and restricted cash

( 204,416,437 )

( 108,468,684 )

cash equivalents and restricted cash — beginning of period

cash equivalents and restricted cash — end of period

Supplemental cash flow information:

Interest paid

schedule of non-cash investing and financing activities:

exercised into common stock

lease assets obtained in exchange for new operating lease liabilities

currencies transferred from fund

$ 137,843,761

proceeds from sale of property & equipment

Reclassifications

from advances to vendor to property and equipment upon receipt of equipment

$ 260,574,908

stock issued for service and license agreements

(in thousands)

Three Months Ended March 31,

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Amortization of prepaid service contract

Deferred tax expense (benefit)

Realized and unrealized losses on digital assets held within Investment Fund

Realized (gains) on digital assets and unrealized losses on digital assets loan receivable

Impairment of digital assets

Stock-based compensation

Amortization of debt issuance costs

Impairment of patents

Loss from extinguishment of debt

Other adjustments from operations, net

Changes in operating assets and liabilities:

Digital assets:

Revenues from digital asset production

Proceeds from sale of digital assets

Prepaid expenses and other assets

Accounts payable and accrued expenses

Accrued interest

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Advances to vendors

Purchase of property and equipment

Investments in Joint Venture

Purchase of equity investments

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock, net of issuance costs

Repayment of term loan borrowings

Value of shares withheld for taxes

Net cash provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash — beginning of period

Cash, cash equivalents and restricted cash — end of period

Supplemental Information

Cash paid during the year for:

Supplemental schedule of non-cash investing and financing activities:

Receivable due to share issuance

Operating lease assets obtained in exchange for new operating lease liabilities

Reclassifications from advances to vendor to property and equipment upon receipt of equipment

Common stock issued for service and license agreements

accompanying notes are an integral part to these unaudited consolidated condensed financial statements.

MARATHON DIGITAL HOLDINGS, INC.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

1 unchanged sentence

1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Digital Holdings, Inc.

(the “Company”) was incorporated in the State of Nevada on February 23, 2010 under the name Verve

Ventures, Inc.

On December 7, 2011, the Company changed its name to American Strategic Minerals Corporation and was engaged in

exploration and potential development of a minerals business.

In June 2012, the Company discontinued the minerals business and began

to invest in real estate properties in Southern California.

In October 2012, the Company discontinued its real estate business and

the Company commenced IP licensing operations, at which time the Company’s name was changed to Marathon Patent Group, Inc.

2018, the Company began its bitcoin mining operations by purchasing cryptocurrency mining machines and establishing a data center in

Canada to mine digital assets.

The Company ceased operating in Canada in 2020 and relocated all owned mining equipment out of Canada

The Company has since expanded its activities in the mining of bitcoin across the U.S.

were incorporated in the State of Nevada on February 23, 2010 under the name Verve Ventures, Inc.

In October 2012, we commenced our

IP licensing operations, at which time the Company’s name was changed to Marathon Patent Group, Inc.

We purchased digital

asset mining machines and established a data center in Canada to mine digital assets in 2017.

The Company ceased operating in Canada

in 2020 and relocated all owned mining rigs to the U.S.

The Company has since expanded bitcoin mining activities across the U.S.

internationally.

The Company changed its name to Marathon Digital Holdings, Inc.

on March 1, 2021.

As of September 30, 2022, the Company is solely focused on the mining of bitcoin and ancillary opportunities within the bitcoin

As of March 31, 2023, the Company

is solely focused on the mining of bitcoin and ancillary opportunities within the Bitcoin ecosystem.

businesses are those that relate to the Bitcoin ecosystem but may be above and beyond those directly related to the self-mining of bitcoin.

The ancillary businesses most closely related to mining of bitcoin may include, but will not be limited to, management of bitcoin mining

facilities for third party owners, advisory and consulting services to third parties seeking to set up and operate bitcoin mining

facilities and joint ventures for bitcoin mining projects in domestic and international jurisdictions such as our project in Abu Dhabi,

United Arab Emirates.

We will also seek to be involved in Bitcoin related projects including, but not limited to, development of technologies

in immersion, hardware, firmware, mining pools and side chains that use the bitcoin blockchain.

We will also seek to be involved in the

development of projects and technologies for generating electricity from renewable energy sources as well as methane gas capture to power

bitcoin mining projects.

term “Bitcoin” with a capital “B” is used to denote the Bitcoin protocol which implements a highly available,

public, permanent, and decentralized ledger.

The term “bitcoin” with a lower case “b” is used to denote the token,

2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations

accompanying consolidated condensed financial statements are unaudited and have been prepared in accordance with the rules and regulations

They include all adjustments that we consider necessary for a fair statement of the results for the interim periods presented.

Such adjustments consisted only of normal recurring items unless otherwise disclosed.

The September 30, 2022, Condensed Consolidated

Balance Sheet was derived from audited financial statements but does not include all footnote disclosures from the annual financial statements.

financial statements should be read in conjunction with the financial statements and related notes included in the Company’s

Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 10, 2022.

The consolidated condensed balance sheet was derived

from audited financial statements but does not include all footnote disclosures from the annual financial statements.

of Presentation and Principles of Consolidation

accompanying unaudited consolidated condensed financial statements, including the accounts of the Company’s subsidiaries, Marathon

Crypto Mining, Inc., Crypto Currency Patent Holding Company and Soems Acquisition Corp.

have been prepared by the Company, without audit,

pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual

Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 16, 2023.

accompanying unaudited consolidated condensed financial statements include the accounts of the Company and its wholly owned and controlled

subsidiaries.

Intercompany balances and transactions have been eliminated in consolidation.

The consolidated condensed financial statements

have been prepared by the Company pursuant to the rules and regulations of the SEC.

Certain information and disclosures normally included

in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have

been condensed or omitted pursuant to such rules and regulations.

These consolidated condensed financial statements reflect all adjustments

(consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial

position, the results of operations and cash flows of the Company for the periods presented.

It is suggested that these consolidated

condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the

Company’s most recent Annual Report on Form 10-K.

The results of operations for the interim periods are not necessarily indicative

of the results to be expected for the full year ended December 31, 2022.

Reclassifications

Certain prior period amounts have been reclassified

to conform to the current period presentation.

These reclassifications have no effect on the reported financial position, results of operations,

or cash flows.

Previously reported compensation and related taxes, consulting fees, and professional fees have now been reclassified within

general and administrative expenses.

In addition, previously reported change in fair value of warrant liability, realized gain on sale

of digital currencies and interest income have now been reclassified as other non-operating income.

in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) have been condensed or omitted pursuant to such rules and regulations.

These consolidated condensed financial statements

reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present

fairly the financial position, the results of operations and cash flows of the Company for the periods presented.

The results of operations

for the interim periods are not necessarily indicative of the results to be expected for any future fiscal periods in 2023 or for the

full year ended December 31, 2023.

of Estimates and Assumptions

preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the

preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements

1 unchanged sentence

Actual results could differ from those estimates.

estimates made by management include, but are not limited to, estimating the useful lives of fixed assets, the assumptions used to calculate

fair value of options granted, realization of long-lived assets, deferred income taxes, unrealized tax positions and the realization

of digital currencies.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

cash principally represents those cash balances that support commercial letters of credit and are restricted from withdrawal.

estimates made by management include, but are not limited to, estimates of the useful lives of fixed assets, assumptions used to calculate

fair value of options granted, realization of long-lived assets, deferred income taxes, unrealized tax positions and realization of digital

Reclassifications

prior period amounts have been reclassified to conform to the current period presentation.

These reclassifications have no effect on

the reported financial position, results of operations, or cash flows.

Previously reported depreciation and amortization expense has

now been reclassified to “Cost of revenues - depreciation and amortization.” Previously reported compensation and related

taxes, consulting fees, and professional fees have now been reclassified within “General and administrative expenses.” In

addition, previously reported interest income has now been reclassified to “Other non-operating income.”

and Cash Equivalents and Restricted Cash

Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased,

to be cash equivalents.

The Company maintains cash and cash equivalent balances at financial institutions that are insured by the FDIC.

As of March 31, 2023 and December 31, 2022, the Company’s bank balances with its primary cash management institutions exceeded

the FDIC limit ($ 250 thousand).

In March 2023, the Company began to participate, to the extent practicable, in deposit programs

which “sweep” its deposits across multiple FDIC insured accounts, each with deposits of no more than $ 250 thousand.

cash principally represented those cash balances that support commercial letters of credit and are restricted from withdrawal.

The following

table provides a reconciliation of the total cash, cash equivalents and restricted cash reported on the Condensed Consolidated Balance

Sheets to the corresponding amounts reported on the Condensed Consolidated Statements of Cash Flows.

SCHEDULE OF RESTRICTED CASH

and cash equivalents

cash equivalents and restricted cash

Currencies, Digital currencies, restricted and Digital currencies loaned

Digital currencies, and Digital currencies

loaned are included in current assets in the consolidated balance sheets.

Digital currencies are recorded as indefinite lived

intangibles at cost less impairment in accordance with FASB ASC 350 – Intangibles-Goodwill and Other.

Digital currencies,

restricted represent collateral for long-term loans and as such are classified as a non-current asset.

An intangible asset with an indefinite useful

life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating

that it is more likely than not that the indefinite-lived asset is impaired.

When the exchange-traded price of digital currencies declines

below its carrying value, the Company has determined that it is more likely than not that an impairment exists.

When this occurs, the

amount of impairment to record is determined based on the fair value of digital currencies in accordance with the fair value measurement

framework in FASB ASC 820 – Fair Value Measurement “(ASC 820”).

If the fair value of digital currency is lower than

its carrying amount, the Company will record an impairment in an amount by which the carrying value exceeds the fair value of the digital

Subsequent reversal of impairment losses is not permitted.

following table presents the activities of the digital currencies for the nine months ended September 30, 2022:

table provides a reconciliation of the total cash, cash equivalents and restricted cash reported on the consolidated condensed balance

sheet to the corresponding amounts reported on the consolidated condensed statements of cash flows.

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

(in thousands)

Cash and cash equivalents

Restricted cash

Cash, cash equivalents and restricted cash

assets and Digital assets, restricted

assets are included in current and other assets in the consolidated condensed balance sheet.

Digital assets are accounted for as indefinite-lived

intangible assets, and are initially measured in accordance with FASB Accounting Standards Codification (“ASC”) Topic 350

– Intangibles-Goodwill and Other (“ASC 350”).

Digital assets, restricted represent collateral for long-term

loans and as such are classified as a non-current asset.

digital assets are not amortized, but are assessed for impairment annually, or more frequently, when events or changes in circumstances

occur indicating that it is more likely than not that the indefinite-lived intangible asset is impaired.

Whenever the exchange-traded

price of digital assets declines below its carrying value, the Company has determined that an impairment exists and records impairment

equal to the amount by which the carrying value exceeds the fair value.

following table presents the activities of the digital assets and digital assets, restricted for the three months ended March 31, 2023:

SCHEDULE OF ACTIVITIES OF DIGITAL CURRENCIES

currencies at December 31, 2021*

$ 123,243,264

of digital currencies

currencies transferred from fund

of digital currency for charitable contribution

of digital currencies

( 153,045,376 )

currencies at September 30, 2022

$ 197,161,440

a loan of 600

bitcoin ($ 20,437,284 )

On June 14, 2022 the Company terminated the loan and there are no loans of digital assets outstanding as of September 30,

currencies at December 31, 2020

of digital currencies

( 18,472,750 )

received on digital currencies, restricted

of digital currencies, net

currencies at September 30, 2021

September 30, 2022, the Company held approximately 10,670 bitcoin with a carrying value of $ 197.2 million.

The bitcoin were classified

on the balance sheet as digital currencies ( 6,842 bitcoin or approximately $ 126.4 million carrying value) and digital currencies, restricted

( 3,828 bitcoin or approximately $ 70.8 million carrying value).

At September 30, 2022, the fair market value of the Company’s bitcoin

holdings was approximately $ 207.3 million, including digital currencies and digital currencies, restricted.

Digital currencies, restricted

is comprised of bitcoins held as collateral for term loan and revolving line of credit (“RLOC”) borrowings.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

– The bitcoin blockchain and the cryptocurrency reward for solving a block is subject to periodic incremental halving.

is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus

At a predetermined block, the mining reward is cut in half, hence the term “Halving”.

The last halving for bitcoin

occurred on May 12, 2020.

For example, the current fixed reward on the bitcoin network for solving a new block is six and one quarter

(6.25) bitcoin per block, which decreased from twelve and a half (12.5) bitcoin per block in May 2020.

It is estimated that the number

of bitcoin per block will halve again in May 2024.

Many factors influence the price of bitcoin and potential increases or

decreases in prices in advance of or following a future halving is unknown.

Currencies Held in Fund

January 25, 2021, the Company entered into a limited partnership agreement with NYDIG Digital Assets Fund III, LP (“Fund”)

wherein the Fund purchased 4,812.66 bitcoin in an aggregate purchase price of $ 150 million.

The Company owned 100 % of the limited partnership

interests and consolidated the Fund under a voting interest model.

The consolidated assets in the investment fund are included in current

assets in the consolidated balance sheets under the caption “Digital currencies held in fund.

(in thousands)

Digital assets and digital assets, restricted at December 31, 2022

Revenues from digital asset production

Impairment of digital assets

Proceeds from sale of digital assets

Gain on sale of digital assets

Payment of advisory fee

Digital assets and digital assets, restricted at March 31, 2023

of March 31, 2023, the Company held approximately 11,466 bitcoin, classified on the consolidated condensed balance sheet as “Digital

assets”, with a carrying value of $ 189,087 thousand.

At March 31, 2023, the fair market value of the Company’s bitcoin holdings

was approximately $ 326,487 thousand based on Level 1 inputs.

Impairment of digital assets for the three months ended March 31, 2023 includes

an out of period adjustment of $ 1,221 thousand (refer to NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - OUT OF PERIOD ADJUSTMENTS ,

for further discussion).

As of December 31, 2022, the Company held approximately 12,232 bitcoin, relating to digital assets and digital

assets, restricted, with a carrying value of $ 190,717 thousand and a fair value of $ 202,409 thousand based on Level 1 inputs.

assets held in fund

January 25, 2021, the Company entered into a limited partnership agreement with NYDIG Digital Assets Fund III, LP (the “Fund”)

pursuant to which the Fund purchased 4,813 bitcoin for an aggregate purchase price of $ 150,000 thousand.

The Company owned 100 % of the

limited partnership interests and consolidated the Fund under a voting interest model.

The consolidated assets in the investment fund

are included in current assets in the consolidated condensed balance sheet under the caption “Digital assets held in fund.”

Fund qualified and operated as an investment company for accounting purposes pursuant to the accounting and reporting guidance under

ASC 946, Financial Services – Investment Companies, which requires fair value measurement of the Fund’s investments in digital

The digital assets held by the Fund were traded on a number of active markets globally, including the over-the-counter market

and digital asset exchanges.

A fair value measurement under ASC 820 for an asset assumes that the asset is exchanged in an orderly transaction

between market participants either in the principal market for the asset or, in the absence of a principal market, the most advantageous

market for the asset (ASC 820-10-35-5).

The fair value of the assets within the Fund were measured daily

based on pricing obtained from CoinDesk Bitcoin Price Index at approximately 4pm New York time.

Any changes in the fair value of the

assets were recorded in the Consolidated Statement of Operations under the caption “Realized and unrealized gains (losses) of digital currencies held in fund.”

On June 10, 2022, the Company redeemed 100%

of its limited partnership interest in the Fund in exchange for approximately 4,768.5 bitcoin (with a fair market value of

approximately $ 137.8 million).

This bitcoin was transferred from the Fund’s custodial wallet to the Company’s digital

Upon redemption, the Company no longer had a majority voting interest in the Fund and therefore deconsolidated the Fund in

accordance with ASC 810 – Consolidation.

The Company did not record any gain or loss upon deconsolidation as the digital

assets in the Fund were measured at fair value.

Subsequent to the transfer, the bitcoin transferred to the Company’s digital

wallet has been accounted for at cost less impairment in line with its digital currencies measurement policy as described under Digital

Currencies, Digital currencies, restricted and Digital currencies loaned .

The activity in the Fund for the nine months ended

September 30, 2022 and twelve months ended December 31, 2021 was as follows:

OF DIGITAL CURRENCIES HELD IN FUND

currencies held in fund at December 31, 2021

$ 223,915,761

of digital currencies

Realized and unrealized losses on digital currencies held in fund

( 85,016,208 )

expenses incurred by fund

currencies transferred out of fund

( 137,843,761 )

currencies held in fund at September 30, 2022

currencies held in fund at December 31, 2020

of digital currencies held in fund

Realized and unrealized gains on digital currencies held in fund

expenses incurred by fund

currencies held in fund at December 31, 2021

$ 223,915,761

ASC 946 – Financial Services – Investment Companies (“ASC 946”), which requires fair value

measurement of the Fund’s investments in digital assets.

The Company retains the Fund’s investment company specific

accounting principles under ASC 946 upon consolidation.

We recorded any changes in the fair value of the assets in the consolidated

condensed statements of operations under the caption “Realized and unrealized gains (losses) on digital assets held within

Investment Fund.”

June 10, 2022, the Company redeemed 100% of its limited partnership interest in the Fund in exchange for approximately 4,769 bitcoin

with a fair market value of approximately $ 137,844 thousand.

This bitcoin was transferred from the Fund’s custodial wallet to the

Company’s digital wallet.

Upon redemption, the Company no longer had a majority voting interest in the Fund and therefore deconsolidated

the Fund in accordance with ASC 810 – Consolidation (“ASC 810”).

The Company did not record any gain or loss

upon deconsolidation as the digital assets in the Fund were measured at fair value.

Subsequent to the transfer, the bitcoin transferred

to the Company’s digital wallet was accounted for at cost less impairment in line with its digital assets measurement policy as

described under “Digital Assets and Digital assets, restricted.”

Company evaluates its financing and service arrangements to determine whether certain arrangements contain features that qualify as embedded

derivatives requiring bifurcation in accordance with ASC 815 - Derivatives and Hedging (“ASC 815”).

Embedded derivatives

that are required to be bifurcated from the host instrument or arrangements are accounted for and valued as separate financial instruments.

For derivatives that are assets or liabilities, the derivative instrument is initially recorded at its fair value and is then remeasured

at each reporting date with changes in the fair value reported in the statements of operations.

The Company classifies derivative assets or liabilities in the consolidated condensed balance sheet as current or non-current based on whether settlement of the instrument could

be required within 12 months of the consolidated condensed balance sheet date.

The Company contracts with service providers for hosting

of its equipment and operational support in data centers where the Company’s equipment is deployed.

These arrangements also call

for advance payments to be made to vendors in conjunction with the contractual obligations associated with these services.

classifies these payments as “Deposits” on the consolidated condensed balance sheet.

and Equipment

and equipment are stated at cost, net of accumulated depreciation and impairment, as applicable.

Depreciation is computed using the straight-line

method over the estimated useful lives of the assets.

The Company’s property and equipment is primarily composed of bitcoin miners

which are largely homogeneous and have approximately the same useful lives.

Accordingly, the Company utilizes the group method of depreciation

for its bitcoin miners.

The Company will update the estimated useful lives of its bitcoin mining server group periodically as information

on the operations of the mining equipment indicates changes are required.

The Company will assess and adjust the estimated useful lives

of its mining equipment when there are indicators that the productivity of the mining assets is higher or lower than the assigned estimated

useful lives.

which may be made from time to time for strategic reasons (and not to engage in the business of investments), are included in non-current

assets in the consolidated balance sheets.

Investments are recorded at cost and the Company analyzes the value of investments on a quarterly

As part of the Company’s policy to maximize return on strategic investment opportunities, while preserving capital and limiting

downside risk, the Company may at times enter into equity investments or Simple Agreements for Future Equity (“SAFE”) agreements.

The nature and timing of the Company’s investments will depend on available capital at any particular time and the investment opportunities

identified and available to the Company.

On December 21, 2021 and December 30, 2021, the

Company entered into two separate SAFE agreements classified on the balance sheet as non-current assets.

agreements are accounted for as equity securities without readily determinable fair value at cost minus impairment, as adjusted for observable

price changes in orderly transactions for identical or similar investment of the same issue pursuant to Topic 321 Investments –

Equity Securities (“ASC 321”).

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

February 3, 2022, the Company invested approximately $ 10

million in convertible preferred stock of Compute North Holdings, Inc.

acquisition of convertible preferred stock was accounted for as investments in equity securities without readily determinable fair

assets in the consolidated condensed balance sheet.

Investments without a readily determinable fair value are recorded at cost minus

impairment, plus or minus changes from observable price changes in orderly transactions for identical or similar investments of the same

issuer, in accordance with the measurement alternative described in ASC 321 - Investments – Equity Securities (“ASC

As part of the Company’s policy to maximize return on strategic investment opportunities, while preserving capital

and limiting downside risk, the Company may at times enter into equity investments or Simple Agreements for Future Equity (“SAFE”)

The nature and timing of the Company’s investments will depend on available capital at any particular time and the

investment opportunities identified and available to the Company.

February 3, 2022, the Company purchased approximately $ 10,000 thousand of convertible preferred stock of Compute North Holdings, Inc.

The acquisition of convertible preferred stock was accounted for as investments in equity securities without readily determinable fair

value at cost minus impairment, as adjusted for observable price changes in orderly transactions for identical or similar investment

of the same issue pursuant to ASC 321.

This investment was subject to an impairment of $ 10.0

million following Compute North’s Chapter 11 Bankruptcy filing in September 2022 (See Note 6).

May 3, 2022, the Company converted $ 2.0 million

from a SAFE investment into preferred stock while purchasing an additional $ 3.5 million

of preferred stock in Auradine, Inc.

along with entering into a commitment to acquire $ 30.0 million of additional shares of

preferred stock.

of the same issuer, pursuant to ASC 321.

This investment was subject to an impairment of $ 10,000 thousand following Compute North’s

Chapter 11 Bankruptcy filing in September 2022 (See NOTE 8 – COMPUTE NORTH BANKRUPTCY ).

May 3, 2022, the Company converted $ 2,000 thousand from a SAFE investment into preferred stock while purchasing an additional $ 3,500

thousand of preferred stock in Auradine, Inc.

along with entering into a commitment to acquire $ 30,000 thousand of additional shares

of preferred stock.

This forward contract was accounted for under ASC 321 as an equity security.

On September 27, 2022, pursuant to the

forward contract, the Company increased its investment in the preferred stock of Auradine, Inc.

by $ 30.0 million,

bringing its total carrying amount of investment in Auradine, Inc.

preferred stock to $ 35.5 million

with no noted impairments or other adjustments (See Note 11) .

As of September 30, 2022, the Company has one remaining

SAFE investment with a carrying value of $ 1.0 million, with no noted impairments or other adjustments.

Value of Financial Instruments

Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that

prioritizes the inputs to valuation techniques used to measure fair value.

Fair value is the price that would be received to sell an

asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit

price, based on the highest and best use of the asset or liability.

The levels of the fair value hierarchy are:

inputs such as quoted market prices in active markets for identical assets or liabilities

market-based inputs or unobservable inputs that are corroborated by market data

inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

carrying amounts reported in the consolidated balance sheet for cash, accounts receivable, accounts payable, and accrued expenses, approximate

their estimated fair market value based on the short-term maturity of these instruments.

The carrying value of notes payable and other

long-term liabilities approximate fair value as the related interest rates approximate rates currently available to the Company.

assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant

to their fair value measurement.

The Company measures the fair value of its marketable securities and investments by taking into consideration

valuations obtained from third-party pricing sources.

The pricing services utilize industry standard valuation models, including both

income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair

These inputs included reported trades and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark

securities and other observable inputs.

following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and

the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of September 30, 2022 and December

31, 2021, respectively:

SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS

value measured at September 30, 2022

carrying value at September 30,

prices in active markets

other observable inputs

unobservable inputs

Market Accounts

value measured at December 31, 2021

carrying value at

prices in active markets

other observable inputs

unobservable inputs

Market Accounts

$ 266,635,158

currencies held in fund

$ 223,915,761

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

were no transfers among Levels 1, 2 or 3 during the three and nine months ended September 30, 2022.

June 10, 2022, the Company withdrew approximately 4,769 bitcoin from its investment in NYDIG Digital Assets Fund III, LP and transferred the bitcoin directly into the Company’s account.

As a result, the Company will no longer receive “mark-to-market”

accounting for the bitcoin formerly held in the Investment Fund and the 4,769 bitcoin will now be classified as “Digital currencies”

on the balance sheet and subject to impairment analysis as an indefinite-lived intangible.

Income and Basic and Diluted Net Income per Share

income per common share is calculated in accordance with ASC Topic 260:

Earnings Per Share (“ASC 260”).

Basic income per

share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the

For the three and nine months ended September 30, 2022, respectively, the Company incurred a loss position and as such the

computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares

outstanding, as they would be anti-dilutive.

of potential shares for the diluted earnings (loss) per share calculation at September 30, 2022 and 2021 are as follows:

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

of September 30,

to purchase common stock

notes to exchange common stock

following table sets forth the computation of basic and diluted loss per share:

OF COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

loss attributable to common shareholders

$ ( 75,444,407 )

$ ( 22,172,567 )

$ ( 280,027,638 )

$ ( 47,700,445 )

average common shares - basic and diluted

per common share - basic and diluted

3 – REVENUES FROM CONTRACTS WITH CUSTOMERS

Company recognizes revenue under ASC 606, Revenue from Contracts with Customers.

The core principle of the revenue standard is that a

company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration

to which the company expects to be entitled in exchange for those goods or services.

The following five steps are applied to achieve

that core principle:

September 27, 2022, the Company purchased an additional $ 30,000

thousand of preferred stock, bringing its total carrying amount of investment in Auradine, Inc.

preferred stock to $ 35,500

thousand, with no noted impairments or other adjustments.

The Company accounts for the preferred stock as

investments in equity securities without a readily determinable fair value at cost minus impairment, as adjusted for observable

price changes in orderly transactions for identical or similar investments from the same issuer, pursuant to ASC 321 (See NOTE 13

– RELATED PARTY TRANSACTIONS ).

of the three months ended March 31, 2023 and year ended December 31, 2022, the Company has one remaining SAFE investment with a carrying

value of $ 1,000 thousand, with no noted impairments or other adjustments.

Method Investments

Company accounts for investments in which it owns between 20 % and 50 % of the common stock or has the ability to exercise significant

influence, but not control, over the investee using the equity method of accounting in accordance with ASC 323 - Equity Method Investments

and Joint Ventures (“ASC 323”).

Under the equity method, an investor initially records an investment in the stock of

an investee at cost and adjusts the carrying amount of the investment to recognize the investor’s share of the earnings or losses

of the investee after the date of acquisition.

January 27, 2023, the Company and FS Innovation, LLC (“FSI”) entered into a Shareholders’ Agreement regarding the

formation of an Abu Dhabi Global Markets company (the “ADGM Entity”).

For the three months ended March 31, 2023, the

ADGM Entity did not have any earnings or losses.

As of March 31, 2023, the carrying value of the Company’s 20 %

ownership in the ADGM Entity was $ 43,194

The equity method investment is included in non-current assets in the consolidated condensed balance sheet under

“Investments.”

Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the grant-date fair

value of the awards and forfeiture rates.

of Long-lived Assets

reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may

not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted

future cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized

is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

From Contracts with Customers

Company recognizes revenue under ASC 606 – Revenue from Contracts with Customers (“ASC 606”).

The core principle

of the revenue standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers

in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

effective tax rate (“ETR”) from continuing operations was ( 1.06 )% for the three months ended March 31, 2023, and 24.91 % for

the three months ended March 31, 2022, respectively.

The difference between the US statutory tax rate of 21 % was primarily due to the

change in valuation allowance as a result of current year activity.

The following item caused the quarterly ETR to be significantly different

from our historic annual ETR:

the year ended December 31, 2022, the Company concluded, based upon all available evidence,

it was more likely than not that it would not have sufficient future taxable income to realize

the Company’s federal and state deferred tax assets.

As a result, the Company established

a valuation allowance against deferred tax assets that were not supported by reversing deferred

tax liabilities.

No events occurred in the three months ended March 31, 2023 impacting this

determination.

Tax in Interim Periods

Company records its tax expense or benefit on an interim basis using an estimated annual effective tax rate.

This rate is applied to

the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period.

tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted

interim period.

to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.

Uncertainties

Company files federal and state income tax returns.

The 2019-2021 tax years generally remain subject to examination by the IRS and various

state taxing authorities, although the Company is not currently under examination in any jurisdiction.

Company does not currently expect any of its remaining unrecognized tax benefits to be recognized in the next twelve months.

Out-of-Period

the three months ended March 31, 2023, the Company recorded an out-of-period adjustment as a result of applying the quoted price in an

active market to the digital assets in accordance with ASC 820.

The adjustment resulted in increased impairment of digital assets reflected

in the current period consolidated condensed statement of operations of $ 1,221 thousand.

The Company evaluated the quantitative and qualitative

aspects of this out of period adjustment and determined that the adjustment did not have a material impact to any previously reported

quarterly or annual financial statements.

Refer to NOTE 6 - FAIR VALUE MEASUREMENT for further discussion.

Accounting Pronouncements

Company continually assesses any new accounting pronouncements to determine their applicability.

When it is determined that a new accounting

pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change

to its consolidated condensed financial statements and assures that there are proper controls in place to ascertain that the Company’s

consolidated condensed financial statements properly reflect the change.

have been no material changes to our recent accounting pronouncements that were disclosed in our Annual Report on Form 10-K, which was

filed with the SEC on March 16, 2023.

3 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Company recognizes revenue in accordance with ASC 606.

The core principle of the revenue standard is that an entity should recognize

revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company

expects to be entitled in exchange for those goods or services.

The following five steps are applied to achieve that core principle:

Identify the contract with the customer

3 unchanged sentences

Recognize revenue when the Company satisfies a performance obligation

order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in

order to identify the performance obligations in a contract with a customer, an entity must assess the promised goods or services in

the contract and identify each promised good or service that is distinct.

1 unchanged sentence

a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met:

customer can benefit from the good or service either on its own or together with other resources that are readily available to the

customer (i.e., the good or service is capable of being distinct), and

entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract

(i.e., the promise to transfer the good or service is distinct within the context of the contract).

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

customer can benefit from the good or service either on its own or together with other resources

that are readily available to the customer (i.e., the good or service is capable of being

entity’s promise to transfer the good or service to the customer is separately identifiable

from other promises in the contract (i.e., the promise to transfer the good or service is

distinct within the context of the contract).

a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services

5 unchanged sentences

consideration

● Constraining

estimates of variable consideration

5 unchanged sentences

cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

The transaction price

allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time

as appropriate.

Company’s ongoing major or central operations is to use computing power to solve cryptographic algorithms to record and publish

Bitcoin (“BTC”) transactions to blockchain ledgers or provide BTC transaction verification services to the BTC network (such

activity, collectively, “mining”).

In return for verifying transactions to be added as a new block to the network (i.e.,

successfully ‘solving’ a block), the Company is entitled to receive transaction fees and block rewards in the form of BTCs.

Transaction fees are specified in each block of transactions request and are paid by the requester.

The Bitcoin blockchain protocol itself

currently issues a block reward for each solved block at a current rate of 6.25 BTC per block.

Such reward is expected to be reduced

to half of that in 2024.

The Company also mines in a self-operated private pool, which was open to third-party pool participants from

September 2021 until May 2022.

The third-party pool participants employed the Company’s services as a pool operator in exchange

for a pool fee paid to the Company.

As a private pool operator, the Company facilitated the contribution of hash rate by third-party

pool participants who choose to join or leave the pool at will.

rewards - The inflow of bitcoin as a result of receiving a block reward meets the definition of revenue because it gives the miner

economic benefits from rendering services or carrying out its mining activities.

Therefore, the Company may account for the block reward

Company determined it should recognize block rewards it receives from successfully solving a block as revenue from a contract

with a customer (i.e.

BTC network or pool operators) under FASB ASC 606.

The customers under each type of revenue (Participant vs.

pool participants) are further noted below.

All relevant facts and circumstances, including the network’s protocols, were considered

in determining (1) whether the Company has a contract with a customer under FASB ASC 606-10-25-2 and (2) whether its mining activities

on the network meet all the criteria in FASB ASC 606-10-25-1.

rewards are the Company’s most significant source of revenue.

Block rewards included in revenues on the statements of operations

were approximately $12.5 million and $50.8 million, respectively for the three months ended September 30, 2022, and September 30, 2021.

Block rewards included in revenues on the statements of operations were approximately $88.1 and $85.6 million for the nine months ended

September 30, 2022 and September 30, 2021.

Fees - The transaction fees are specified in each transaction request and paid by the requester to the miner in exchange for the

successful processing of the transaction.

The requester meets the definition of a customer in FASB ASC 606 and pursuant to AICPA Practice

Guide “Accounting for and Auditing Digital Assets” because it has contracted with the miner to obtain a service (successful

mining) that is an output of the miner’s ordinary activities in exchange for consideration.

fees included in revenues on the statements of operations were approximately $ 0.2 million and $ 0.9 million, for the three

months ended September 30, 2022 and September 30, 2021, respectively.

Transaction fees included in revenues on the statements of operations were approximately

$ 1.2 million and $ 4.6 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Fees - Pool fees earned by the Company as an operator of a private pool are recognized as revenue from contracts with customers in

accordance with FASB ASC 606.

Pool fees included in revenues on

the statements of operations were approximately zero and $ 0.05 million, respectively for the three months ended September 30, 2022 and

September 30, 2021.

Pool fees included in revenues on the statements of operations were approximately $ 0.3 million and $ 0.05 million,

respectively for the nine months ended September 30, 2022 and September 30, 2021.

As of May 2022, third party miners were no longer

participating in the Company’s mining pool.

As such, the Company ceased recognizing pool fees.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The Company earns revenues as:

a participant in a third-party operated mining pool (“Participant”)

a participant in a privately operated mining pool (“Private pool participant”)

the operator of a private pool (“Operator”)

Company has entered into contracts with third-party mining pool operators, whom the Company considers its customer under FASB ASC

The Company provides a service of computing power (i.e., generated hash rate) that is an output of the Company’s ordinary

activities in exchange for consideration.

These contracts are terminable at any time by either party and the Company’s

enforceable right to compensation only begins when the Company provides computing power to the mining pool operator.

In exchange for

providing computing power, the Company is entitled to consideration equal to a fractional share of the BTC reward (non-cash

consideration, less any pool fees paid to the mining pool operator which are recorded as contra-revenues), for successfully adding

a block to the blockchain.

The Company’s fractional share of the block reward is based on the proportion of the

Company’s contributed hash rate to the total computing power contributed by all mining pool participants in solving the

current algorithm as calculated and determined by the pool operator, net of any pool fees.

provision of computing power is the only performance obligation under our arrangements with the third-party mining pool operators.

The transaction consideration the Company receives, is non-cash and variable in that the amount that it receives is dependent on the

success of the mining pool regardless of whether any hash rate is contributed by the Company (the pool being the first to solve an

The non-cash consideration is measured at the estimated fair value of the contract inception.

However, because it is not

probable that a significant reversal of revenue will not occur, as the Company does not have visibility to exactly when a block is

won and the pro rata share to which it is entitled (as it does when the Company is a participant in a privately operated pool where

the Company is also the pool operator) all consideration is constrained until the Company receives confirmation of the consideration

it earned, usually via the settlement of the block reward in the Company’s digital wallet, at which time revenue is

The Company measures the non-cash consideration at the fair value on the date the block reward is received in the

Company’s digital wallet when the contingency constraint on the transaction consideration is resolved, which is not

materially different than the fair value at contract inception or the time the Company has earned the awards from the third-party

mining pools.

There is no significant financing component in these transactions.

value of the digital asset award received is determined using the daily closing U.S.

dollar spot rate of the related digital currency

on the date received, which is not materially different than the fair value at contract inception.

associated with running the digital currency mining business, such as rent and electricity cost are recorded as cost of revenues.

on digital currency mining equipment is also recorded as a component of cost of revenues.

pool participant

Company operates as a participant in its privately operated pool (“Marapool”).

From September 2021 until May 2022, the

Company operated as a participant in Marapool alongside third-party pool participants.

The Company views the transaction requestor and the blockchain network as its customers under FASB ASC 606.

The Company provides a

service (successful mining) that is an output of the Company’s ordinary activities in exchange for consideration from the

requester and the blockchain network (transaction fee and block reward, respectively).

A contract with a customer exists at the

point when the miner successfully validates a requesting customer’s transaction to the distributed ledger.

At this point, the

performance obligation has been satisfied (i.e., earned) in accordance with FASB ASC 606-10-25-30.

Specifically, the inception of

the contract and the point in time at which the consideration in that same contract is earned occurs simultaneously.

this, the additional criteria in FASB ASC 606-10-25-1 would be met as follows:

the requester (a customer) and the miner have approved the contract and are committed to the transaction at the point of successfully

validating and adding the transaction to the distributed ledger.

party’s rights, the consideration to be transferred, and the payment terms are clear.

transaction has commercial substance (that is, the risk, timing, or amount of the miner’s future cash flows is expected to

change as a result of the contract).

occurs in conjunction with the inception of the contract and the fulfillment of the performance obligation (i.e.

successfully solving

a block) and therefore, there is no risk of collectability.

successfully mining a block, the miner satisfies its performance obligation to the requester and network, thus, should recognize revenue

at that point in time, which is the same point in time as contract inception.

The transaction consideration the Company receives, is

non-cash consideration paid in BTC, and is comprised of transaction fees and block rewards.

The transaction consideration is variable

in that the amount of block reward earned is based on the pro rata share of the computing power the Company contributes in relation to

the total computing power contributed by the pool.

The non-cash consideration is measured at its estimated fair value at contract inception

- that is, the date that the criteria in FASB ASC 606-10-25-1 are met.

The Company is able to apply an estimate to the variable transaction

consideration without risk of significant revenue reversal as the Company has visibility to the computing power it provides for a given

transaction, and the exact timing of when its privately operated pool successfully solves for a block (as compared to when the Company

is a participant in a third-party operated pool as discussed above).

As the Company can estimate its pro rata share of block rewards

and transaction fees prior to the receipt of the rewards in their digital wallet, the Company measures the non-cash consideration at

the fair value when block reward and transaction fee are earned, which is the same point in time as contract inception.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

value of the digital asset award received is determined using the daily closing U.S.

dollar spot rate of the related digital currency

on the date the block reward and transaction fees are earned, which is not materially different than the fair value at contract inception,

or the time the Company has earned the award from the requester and network.

There is no significant financing component in these transactions.

associated with running the digital currency mining business, such as rent and electricity cost are recorded as cost of revenues.

on digital currency mining equipment is also recorded as a component of cost of revenues.

September 2021 until May 2022, the Company entered into pool service contracts with third-party mining pool participants, whom the

Company considered to be a customer under FASB ASC 606.

In these contracts, the Company provided a facilitator service to connect

miners to the blockchain network and to track hash rate generated by each pool participant in exchange for non-cash consideration

equal to a percentage of the block reward and transaction fee earned by the individual pool participants as pool fees.

These contracts were terminable at any time by either party and the Company’s enforceable right to compensation only began

when the Company provided the facilitator services and access to the pool’s software licenses to the pool

participants.

Company’s performance obligations under the arrangement with third-party pool participants were to provide access to the

pool’s software license and track the hash rate generated by each pool participant to enable calculation of the pro rata block

reward and transaction fee payment to each pool participant.

The transaction consideration the Company received is non-cash and

variable in that the pool fees earned is based on the block reward and transaction fees earned by pool participants.

consideration is measured at the estimated fair value of the contract inception, which occurs simultaneously to when the Company has

earned the pool fees (i.e., upon successful mining of a block).

The Company is able to estimate variable consideration at the point

in time it has earned the fees without risk of significant revenue reversal as the Company has visibility to the exact timing of

when the pool successfully solves for a block as pool operator (as compared to when the Company is a participant in a third-party

operated pool) and the block rewards and transaction fees each pool participant is entitled to base on contributed hash rate.

Company can estimate the amount of pool fees prior to the receipt of the fees in the pool’s digital wallet, the Company

measures the non-cash consideration at the fair value on the date the pool fees are earned (using the stated convention below),

which occurs simultaneously to contract inception.

value of the digital asset award received is determined using the daily closing U.S.

dollar spot rate of the related digital currency

on the date the pool fees are earned, which is not materially different than the fair value at contract inception which occurs simultaneously

to the time the pool participants have earned the award from the requester and network.

There is no significant financing component in

these transactions.

associated with the licensed software used in the operation of the private pool are recorded as cost of revenues.

transaction price is allocated to each performance obligation on a relative standalone selling price basis.

transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in

time or over time, as appropriate.

of the five-step model to the Company’s mining operations

The Company’s ongoing major or central operation is to provide bitcoin transaction verification services to

the bitcoin network through a Company-operated mining pool as the operator and a participant in a private pool (“Operator”)

(such activity as Participant and Operator, collectively, “mining”) and to provide computing power to collectives of third-party bitcoin miners (such collectives, “mining

pools”) as a participant (“Participant”).

The Company currently mines in a self-operated pool,

which was previously open to third-party pool participants from September 2021 until May 2022.

The following table presents revenue of the Company disaggregated for those arrangements in which the Company is the Operator and Participant:

SCHEDULE OF DISAGGREGATION OF REVENUE

(in thousands)

Three Months Ended March 31,

(in thousands)

Revenues from contracts with customers

Operator - Transaction fees

Other revenue

Operator - Block rewards

Total revenue

Operator, the Company provides transaction verification services.

Transaction verification services are an output of the Company’s

ordinary activities;

therefore, the Company views the transaction requestor as a customer and accounts for the transaction fees it earns

as revenue from a contract with a customer under ASC 606.

The bitcoin network is not an entity such that it may not meet the definition

of a customer;

however, the Company has concluded it is appropriate to apply ASC 606 by analogy to block rewards earned from the network.

A contract exists under ASC 606 at the point the Company successfully validates a transaction to the distributed ledger.

At this point,

the performance obligation to validate the requested transaction has been satisfied and a contract is deemed to exist as follows:

transaction requester, the bitcoin network, and the Company have approved the contract and have evidenced they are committed to the transaction

at the point of successfully validating and adding the transaction to the distributed ledger.

The parties’ rights, the consideration

to be transferred, and the payment terms are clear.

The transaction has commercial substance and collection of the block reward and transaction

fees to which the Company is entitled is probable because they are transferred to the Company as part of closing a successful block.

successfully mining a block, the Company satisfies its lone performance obligation of providing transaction verification services and,

thus, earns revenue at that point in time.

The amount to which the Company is entitled for successfully validating a block of transactions

is fixed at the point in time the contract is deemed to exist and the performance obligation is satisfied.

Thus, there is no variable

consideration.

The Company engaged unrelated third-party mining enterprises (“pool

participants”) to contribute computing power, and in exchange, remitted transaction fees and block rewards to pool participants

on a pro rata basis according to each respective pool participant’s contributed computing power (“hash rate”).

wallet (owned by the Company as Operator) is recorded on the distributed ledger as the winner of proof of work block rewards and assignee

of all validations and, therefore, the transaction verifier of record.

The pool participants entered into contracts with the Company as

they did not directly enter into contracts with the network or the requester and were not known verifiers of the transactions

assigned to the pool.

As Operator, the Company delegated mining work to the pool participants utilizing software that algorithmically

assigned work to each individual miner.

By virtue of its selection and operation of the software, the Company as Operator controlled delegation

of work to the pool participants.

This indicated that the Company directed the mining pool participants to contribute their hash rate

to solve in areas that the Company designates.

Therefore, the Company determined that it controlled the service of providing transaction

verification services to the network and requester.

Accordingly, the Company recorded all of the transaction fees and block rewards earned

from transactions assigned to MaraPool as revenue, and the portion of the transaction fees and block rewards remitted to MaraPool participants

as cost of revenues.

The Company operated a mining pool that engaged third-party pool participants from September 2021 until May 2022.

606-10-32-21 requires entities to measure the estimated fair value of noncash consideration at contract inception, which is the same

time the block reward and transaction fee is earned and the performance obligation to the requester and the network is fulfilled by successfully

validating the applicable block of transactions.

For reasons of operational practicality, the Company applies an accounting convention

to use the daily quoted closing U.S.

dollar spot rate of bitcoin each day to determine the fair value of bitcoin earned as transaction

fees and block rewards in the Company’s wallet during that day.

This accounting convention does not result in materially different

revenue recognition from using the fair value of the bitcoin earned at contract inception (i.e., the moment a block is solved) and has

been consistently applied in all periods presented.

associated with providing the bitcoin transaction verification services to the customers, such as rent, electricity cost, and transaction

fees and block rewards are recorded as cost of revenues.

Depreciation on digital asset mining equipment is recorded as a component of

cost of revenues.

the Company is a Participant in a third-party operated mining pool, the Company provides hash rate that is an output of the Company’s

ordinary activities in exchange for consideration.

The Company considers the third-party mining pool operators its customers under Topic

These contracts are period-to-period contracts because they are terminable at any time by either party without compensation.

contract is determined to exist each period (i.e., second, minute, hour) that neither the Company, nor the pool operator, terminates

the arrangement.

consideration to which the Company is entitled is a fractional share of the block award and transaction fees;

the amount of which

is based on the proportion of the Company’s contributed hash rate to the total computing power contributed by all mining pool participants

in solving the current algorithm as calculated and determined by the pool operator, usually through usage of a mining software, net of

any pool fees due to the pool operator.

The Company receives the consideration in aggregate typically within 24 hours of winning the

block, and any disputes to the consideration to which the Company is entitled can be made by notifying and resolving the issues with

the pool operators.

However, there have not been any subsequent adjustments to the fees received, therefore the Company concludes that

it is probable that a significant reversal of revenue recognized will not occur upon settlement.

computing power on rigs to solve complex cryptographic algorithms in support of blockchain mining (in a process known as “solving

a block”) is the primary output of the Company’s ordinary activities.

The provision of computing power is the only performance

obligation under our arrangements with third-party mining pool operators.

The transaction consideration the Company receives is non-cash

(i.e., bitcoin) and entirely variable as it is unknown at each contract inception whether the Company will earn any consideration during

the period, and if it does become entitled to consideration, how much consideration to which it will be entitled.

Company satisfies its performance obligation to provide computing power to the pool operator over time as described in FASB ASC 606-10-25-27(a)

as the pool operator simultaneously consumes and receives benefits from the Company’s provision of computing power, which it uses

continuously as an input to the pool’s efforts to solve a block.

accordance with FASB ASC 606-10-32-11 and 32-12, the Company constrains the variable consideration to which it is entitled and does not

recognize revenue for such amounts until it receives confirmation of the amount, usually via the settlement of the fractional share of

block reward and transaction fees in the Company’s digital wallet.

Since the Company does not have visibility on its contributed

computing power relative to the pool’s total computing power, which is one of the key inputs that determine the fractional block

reward and transaction fees share to which it is entitled;

therefore, it only knows the amount of non-cash consideration to which

it is entitled upon settlement of the Company’s earned fractional share into its digital wallet.

Because of this and the fact that

the Company’s fractional share substantively varies from block to block, it is not probable that a significant reversal of revenue

will not occur until the uncertainty related to the Bitcoin to which the Company is entitled ultimately resolves at settlement.

At settlement,

the total block reward and transaction fees consideration earned by the pool operator are allocated and distributed (with no provision

for, or risk of, clawback) by the pool operator to each participant based on each participant’s contribution of computing power.

Consequently, at that point in time, the risk of significant revenue reversal abates such that consideration should be added to the transaction

price (and revenue recognized accordingly).

Settlement of consideration typically occurs within 24 hours of when a block is won unless

such block is won over a weekend or holiday, in which case settlement can take up to 72 hours.

Company uses its accounting convention to measure revenue based upon the daily quoted closing U.S.

dollar spot rate of bitcoin on the day

the transaction fees and block rewards are settled in the Company’s wallet.

This accounting convention does not result in materially

different revenue recognition from using the fair value of the bitcoin earned at contract inception and has been consistently applied

in all periods presented.

associated with providing computing power services to third-party operated mining pools, such as rent and electricity costs, are recorded

as cost of revenues.

Depreciation on digital asset mining equipment is also recorded as a component of cost of revenues.

4 – ADVANCES TO VENDORS AND DEPOSITS

2 unchanged sentences

within several days of execution of a specific contract and periodically thereafter with final payments due prior to each shipment date.

We account for these payments as Advances to vendors on the balance sheet.

of September 30, 2022 and December 31, 2021, such advances totaled approximately $ 687.8 million and $ 466.3 million, respectively.

addition, the Company contracts with other service providers for hosting of its equipment and operational support in data centers where

the company’s equipment is deployed.

These arrangements also call for advance payments to be made to vendors in conjunction with

the contractual obligations associated with these services.

We classify these payments as Deposits on the balance sheet.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The Company accounts for these payments as “Advances to vendors” on the consolidated condensed balance sheet.

of March 31, 2023 and December 31, 2022, such advances totaled approximately $ 57,511 thousand and $ 488,299 thousand, respectively.

addition, the Company contracts with other service providers for the hosting of its equipment and operational support in data centers

where the Company’s equipment is deployed.

These arrangements also call for advance payments to be made to vendors in conjunction

with the contractual obligations associated with these services.

We classify these payments as “Deposits” on the consolidated

condensed balance sheet.

5 – PROPERTY AND EQUIPMENT

components of property and equipment as of September 30, 2022 and December 31, 2021 are:

SCHEDULE OF COMPONENTS OF PROPERTY, EQUIPMENT

components of property and equipment as of March 31, 2023 and December 31, 2022 are:

OF COMPONENTS OF PROPERTY AND EQUIPMENT

(in thousands, except useful life)

Useful life (Years)

March 31, 2023

December 31, 2022

Website and leasehold improvements

Construction in progress

Gross property, equipment

Accumulated depreciation

Property and equipment, net

Accumulated depreciation and amortization

equipment and intangible assets, net

Company’s depreciation expense related to property and equipment for the three months ended September 30, 2022 and September 30,

2021 was $ 26.3 million and $ 4.3 million, respectively.

The Company’s depreciation expense related to property and equipment for

the nine months ended September 30, 2022 and September 30, 2021 was $ 64.9 million and $ 8.0 million, respectively.

expense for the three months ended September 30, 2022 and September 30, 2021 was $ 11 thousand and $ 18 thousand, respectively.

expense for the nine months ended September 30, 2022 and September 30, 2021 was $ 32 thousand and $ 54 thousand, respectively.

Company’s depreciation expense related to property and equipment for the three months ended March 31, 2023 and 2022 was $ 17,733

thousand and $ 13,877 thousand, respectively.

6 – FAIR VALUE MEASUREMENT

Company measures certain financial and non-financial assets and liabilities at fair value on a recurring or non-recurring basis.

Company uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

Fair value is the

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at

the measurement date, essentially an exit price, based on the highest and best use of the asset or liability.

The levels of the fair

value hierarchy are:

inputs such as quoted market prices in active markets for identical assets or liabilities

market-based inputs or unobservable inputs that are corroborated by market data

inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions

carrying amounts reported in the consolidated condensed balance sheet for cash and cash equivalents, other receivable, deposits, prepaid

expenses and other current assets, property and equipment, advances to vendors, accounts payable, accrued expenses, and legal reserve

payable, approximate their estimated fair market value based on the short-term maturity of these instruments.

assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant

to their fair value measurement.

The Company measures the fair value of its marketable securities and investments by taking into consideration

valuations obtained from third-party pricing sources.

The pricing services utilize industry standard valuation models, including both

income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair

These inputs included reported trades and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark

securities and other observable inputs.

measurement of fair value

following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis and

the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of March 31, 2023 and December

31, 2022, respectively:

SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS

Recurring fair value measured at March 31, 2023

(in thousands)

Total carrying value at March 31, 2023

Quoted prices in active markets

Significant other observable inputs

Significant unobservable inputs

Cash and cash equivalents (1)

Recurring fair value measured at December 31, 2022

(in thousands)

Total carrying value at December 31, 2022

Quoted prices in active markets

Significant other observable inputs

Significant unobservable inputs

Cash and cash equivalents (1)

(1) Represents money

market accounts.

Excludes $ 124,729 thousand and $ 11,661 thousand of cash and cash equivalents.

were no transfers among Levels 1, 2 or 3 during the three months ended March 31, 2023.

Non-recurring

measurement of fair value

following tables present information about the Company’s assets and liabilities measured at fair value on a non-recurring basis

and therefore, not included in the tables above.

These assets include (a) digital assets and digital assets, restricted that are initially

recorded at cost and subsequently impaired as the fair value falls below its carrying value;

(b) mining rigs and advances to vendors

that are written down to fair value due to the decrease in the cost of bitcoin mining rigs that was driven by the drop in bitcoin prices

during the fourth quarter ended December 31, 2022.

These assets are not measured at fair value on an ongoing basis but are subject to

fair value adjustments in certain circumstances (e.g., impairment).

The Company’s estimated level within the fair value hierarchy

of those assets and liabilities as of March 31, 2023 and December 31, 2022, respectively:

SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON NON-RECURRING BASIS

Non-recurring fair value measured at March 31, 2023

(in thousands)

Total carrying value at March 31, 2023

Quoted prices in active markets

Significant other observable inputs

Significant unobservable inputs

Digital assets

Non-recurring fair value measured at December 31, 2022

(in thousands)

Total carrying value at December 31, 2022

Quoted prices in active markets

Significant other observable inputs

Significant unobservable inputs

Digital assets

Property and equipment, net (1)

Advances to vendors

Digital assets, restricted

(1) Represents mining

Excludes $ 1,746 thousand of Property and equipment relating to containers and website and leasehold improvements.

the three months ended March 31, 2023, the fair value of digital assets and digital assets, restricted were transferred from Level 2

to Level 1, as a result of using the quoted price in the active market in accordance with ASC 820.

There were no other transfers among

Levels 1, 2 or 3 during the three months ended March 31, 2023.

As of March 31, 2023 and December 31, 2022, there were no other assets

and liabilities measured at fair value on a non-recurring basis.

7 – NET LOSS PER SHARE

income per common share is calculated in accordance with ASC Topic 260 – “Earnings Per Share” (“ASC 260”).

Basic income per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding

during the period.

For the three months ended March 31, 2023 and 2022, respectively, the Company incurred a loss position and as such,

the computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding,

as they would be anti-dilutive.

that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at March

31, 2023 and 2022 are as follows:

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

Three months ended March 31,

Warrants to purchase common stock

Restricted stock units

Convertible notes to exchange common stock

Total dilutive shares

following table sets forth the computation of basic and diluted loss per share:

SCHEDULE OF COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE

Three months ended March 31,

Net loss attributable to common shareholders

Weighted average common shares - basic and diluted

Loss per common share - basic and diluted

8 – COMPUTE NORTH BANKRUPTCY

On September 22, 2022, Compute North Holdings,

(along with its affiliated debtors, collectively, “Compute North”), filed for chapter 11 bankruptcy protection in

September 22, 2022, Compute North Holdings, Inc.

(along with its affiliated debtors, collectively, “Compute North”, filed

for Chapter 11 bankruptcy protection in the U.S.

Bankruptcy Court for the Southern District of Texas under Chapter 11 of the U.S.

Bankruptcy Code (11 U.S.

Code section 101 et

Marathon’s financial exposure to Compute North at the time of the bankruptcy filing included:

Code (11 U.S.

Code section 101 et seq .).

Marathon’s financial exposure to Compute North at the time of the bankruptcy filing

Approximately

$ 10 million in Convertible Preferred Stock of Compute North Holdings, Inc.

$ 10,000 thousand in Convertible Preferred Stock of Compute North Holdings, Inc.

Approximately

$ 21 million related to an unsecured Senior Promissory note with Compute North LLC.

$ 21,000 thousand related to an unsecured Senior Promissory note with Compute North LLC.

Approximately

$ 50 million in operating deposits with Compute North primarily related to the King Mountain

and Wolf Hollow hosting facilities.

The Company assessed this financial exposure and recorded an impairment

of the Convertible Preferred Stock, the unsecured Senior Promissory note and certain deposits totaling $39 million during the three months

ended September 30, 2022.

The ultimate outcome of the bankruptcy process, and its impact on the remaining deposits held by the Company,

remains to be determined.

The Company has engaged creditor’s counsel and is vigorously defending and protecting its various assets

at the Compute North facilities as well as minimizing its long-term financial exposure with regard to Compute North.

7 – LEGAL RESERVES

the three months ended September 30, 2022, the Company recorded a $ 25

million legal reserve related to the fair value

of certain stock grants used for personal income tax reporting purposes during 2021.

The majority of this reserve was related to a claim

made by the Company’s former Chairman and CEO.

In working on this initial claim, the Company discovered that five other individuals

were also impacted by the same issue, including one current board member and the current Chairman and CEO.

The total amount of this portion

of the reserve amounted to less than $ 1

Legal settlements that were accrued

but remained unpaid as of September 30, 2022 were classified as “legal reserve payable”.

All of these legal settlements were

finalized and paid as of October 15, 2022.

$ 50,000 thousand in operating deposits with Compute North primarily related to the King Mountain and Wolf Hollow hosting facilities.

Company recorded an impairment charge of $ 55,674 thousand during 2022.

On February 16, 2023, the Bankruptcy Court approved the Debtors

Plan of Reorganization, pursuant to which Marathon’s claim has been fixed at $ 40,000 thousand as an unsecured claim to be paid

out according to the timing and percentages within the approved Debtor’s plan.

9 – STOCKHOLDERS’ EQUITY

2 unchanged sentences

Wainwright & Co.,

LLC (“Wainwright”) relating to shares of its common stock.

In accordance with the terms of the sales agreement, the

Company may offer and sell shares of our common stock having an aggregate offering price of up to $ 750

million from time to time through Wainwright acting as its sales agent.

As of September 30, 2022, the Company had sold 13,459,752

shares of common stock for an aggregate purchase price of $ 198.7

million net of offering costs pursuant to this At-The-Market Offering Agreement.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

B Convertible Preferred Stock

of September 30, 2022, there were no shares of Series B Convertible Preferred Stock outstanding.

E Preferred Stock

As of September 30, 2022, there

were no shares of Series E Convertible Preferred Stock outstanding.

LLC relating to shares of its common stock.

In accordance with the terms of the sales agreement, the Company

may offer and sell shares of its common stock having an aggregate offering price of up to $ 750,000 thousand from time to time through

Wainwright acting as its sales agent.

As of March 31, 2023, the Company has sold 63,498,908 shares of common stock for an aggregate purchase

price of $ 524,781 thousand, net of offering costs, pursuant to this At-The-Market Offering Agreement.

Stock Warrants

summary of the Company’s issued and outstanding stock warrants and changes during the nine months ended September

of March 31, 2023 and December 31, 2022, the Company had 324,375 issued and outstanding stock warrants.

summary of the restricted stock award activity (represented by restricted stock units (RSUs) for the three months ended March 31, 2023

is as follows:

SUMMARY OF OUTSTANDING STOCK WARRANTS

Exercise Price

Average Remaining Contractual Life

as of December 31, 2021

as of September 30, 2022

exercisable as of September 30, 2022

aggregate intrinsic value of warrants outstanding and exercisable at September 30, 2022 was

Stock Options

of September 30, 2022 and December 31, 2021, there were no stock options outstanding.

summary of the restricted stock award activity (represented by restricted stock units (RSUs) for the nine months ended September 30,

2022, as follows:

SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY

Average Grant Date Fair Value

at December 31, 2021

at September 30, 2022

the third quarter of 2022, the Compensation Committee issued grants that will vest over the next four

years and result in total stock compensation expense

of approximately $ 2.1

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

November 18, 2021, the Company issued $ 650

million principal amount of its 1.00 %

Convertible Senior Notes due 2026 (the “Notes”).

The Notes were issued pursuant to, and are governed by, an indenture dated

as of November 18, 2021, between the Company and U.S.

Bank National Association, as trustee.

Pursuant to the purchase agreement between

the Company and the initial purchasers of the Notes, the Company also granted the initial purchasers an option to purchase up to an additional

million principal amount of Notes.

was exercised and an additional $ 97.5

million principal amount of Notes were issued

on November 23, 2021.

As of September 30, 2022 and December 31, 2021, notes outstanding, net of unamortized discounts of approximately

million and $ 19.1

million, respectively, were $ 731.3

million and $ 728.4

million, respectively.

July 28, 2022, the Company entered into a Revolving Credit and Security Agreement (the “Agreement” or “RLOC”)

with Silvergate Bank (the “Bank”) pursuant to which Silvergate has agreed to loan the Company up to $ 100 million on a revolving

basis pursuant to the terms of the Agreement.

This facility refinanced and replaced an existing $ 100 million facility the Company had

in place with the Bank.

On the same date the Company also entered into a $ 100 million principal term loan facility (the “Term Loan”).

The terms of the facilities set forth in the RLOC and the Term Loan are as follows:

is on August 5, 2024 .

of the facilities:

RLOC shall be made available from time to time to the Company for periodic draws (provided no event of default then exists) from

its closing date up to and including the termination date of the Agreement.

Company may borrow up to $ 100 million on the term loan, with $ 50 million to be made as of the Closing Date (the “Initial Draw”),

and $ 50 million to be made, at Borrower’s request, on or before April 25, 2023 (the “Delayed Draw”), and subject

to satisfaction of the conditions set forth in the Term Loan Agreement.

0.35 % of the Loan Commitment to the Bank (or $ 350 thousand);

due at RLOC closing (and on each anniversary if the RLOC continues

for more than one year).

An origination fee of $ 150 thousand and a contingent draw fee in the amount of $ 250 thousand (the, “Contingent Draw

Fee”) upon the execution of the Term Loan Agreement.

This Contingent Draw Fee will be refunded to the Company if it borrows

the Delayed Draw by no later than November 25, 2022.

per annum of the portion of the unused Loan Commitment, payable monthly in arrears.

RLOC may be renewed annually by agreement between the Bank and the Company, subject to (without limitation):

(i) Company makes a

request for renewal, in writing, no less than sixty (60) days prior to the then current maturity date, (ii) no event of default then

exists, (iii) Company provides all necessary documentation to extend the RLOC, (iv) Company has paid all applicable fees related

to the loan renewal, and (v) the Bank has approved such extension request according to its internal credit policies as determined

by the Bank in its sole and absolute discretion.

Rate and Payments

the facilities:

Interest only to be paid monthly, with principal all due at maturity.

The interest rate is defined as the higher of (i) the Floor

Rate and (ii) Prime Rate plus the Applicable Margin.

“Floor Rate” shall mean, as of any date of determination:

and one-quarter percent (5.25%) for any days during an Interest Period the Loan to Value (“LTV”) Ratio is less than forty

percent (40%), (b) six percent (6.00%) for any days during an Interest Period the LTV Ratio is greater than or equal to forty percent

(40%) and less than fifty-five percent (55%), and (c) six and three-quarter percent (6.75%) for any day.

The Applicable Margin means

(a) one and one-quarter percent (1.25%) for any days during an Interest Period the LTV Ratio is less than forty (40%),

(b) two percent (2.00%) for any days during an Interest Period the LTV Ratio is greater than or equal to forty (40%) and less than fifty-five

percent (55%), and (c) two and three-quarter percent (2.75%) for any days during an Interest Period the LTV Ratio is greater than

or equal to fifty-five percent (55%).

Interest, which shall be due on the principal amount of the loan, at the higher of 5.75 % and the Prime Rate plus 1.75 %,

only to be paid monthly, with principal all due at maturity.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

for the facilities:

RLOC and term loan facilities are secured by a pledge of a sufficient amount of Company’s right, title and interest in

and to bitcoin stored in a custody account for the benefit of the Bank (the “Collateral Account”).

The Bank will establish

a Collateral Account with a regulated custodial entity (the “Custodian”) that has been approved by the Bank.

and Custodian will have a custodial agreement to perfect the security interest in the pledged Collateral Account which, among other

things, allows for 1) the Bank to monitor the balance of the Collateral Account and 2) allows the Bank to have exclusive control

over the Collateral Account including liquidation of the collateral in the event of Company’s default under the terms of the

The Bank may also file a UCC financing statement on the pledged collateral.

The Company bears the risk of loss from market value declines of its collateral

pursuant to its obligation to pledge additional bitcoin if its market value declines such that outstanding borrowings under the RLOC are

undercollateralized.

The Company may also withdraw its collateral from the Collateral Account if market value of bitcoin increases and

outstanding borrowings under the RLOC are overcollateralized or if such borrowings are repaid in whole or in part.

Advance Rates

the facilities:

origination, the Company must ensure the Collateral Account balance has sufficient bitcoin to cause the LTV ratio to equal 65 % (or

less) (“Minimum Advance Rate”) on the unpaid principal balance of the facilities.

If at any time the LTV ratio exceeds

75 %, the Company must bring the rate of advance to the Minimum Advance Rate.

for the facilities:

Company must maintain a minimum adjusted net worth of $ 350 million.

The Company must maintain a minimum liquidity of $ 25 million.

10 – LEASES, COMMITMENTS AND CONTINGENCIES

February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842), and has since issued amendments thereto, related to the accounting

for leases (collectively referred to as “ASC 842”).

ASC 842 establishes a right-of-use, or ROU model that requires a lessee

to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.

Leases will be classified

as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

Effective January

1, 2019, the Company adopted ASU 842.

The Company determines if an arrangement contains a lease at inception based on whether or not

the Company has the right to control the asset during the contract period and other facts and circumstances.

Number of Units

Weighted Average Grant Date Fair Value

Nonvested at December 31, 2022

Nonvested at March 31, 2023

November 18, 2021, the Company issued $ 650,000 thousand principal of its 1.0 % Convertible Senior Notes due 2026 (the “Notes”).

The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of November 18, 2021, between

the Company and U.S.

Bank National Association, as trustee (the “Trustee”).

Pursuant to the purchase agreement between the

Company and the initial purchasers of the Notes, the Company also granted the initial purchasers an option, for settlement within a period

of 13 days from, and including, November 18, 2021 to purchase up to an additional $ 97,500 thousand principal of Notes, which additional

Notes were purchased on November 23, 2021, for an aggregate principal amount of Notes purchased of $ 747,500 thousand.

All references

in this disclosure to “Notes” includes the Notes issued on both November 18, 2021 and November 23, 2021.

As of March 31,

2023 and December 31, 2022, notes outstanding, net of unamortized discounts of approximately $ 14,240 thousand and $ 15,211 thousand, respectively,

were $ 733,260 thousand and $ 732,289 thousand, respectively.

Notes accrue interest at a rate of 1.00 % per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning

on June 1, 2022.

The Notes will mature on December 1, 2026, unless earlier repurchased, redeemed or converted.

Before the close of business

on the business day immediately before September 1, 2026, noteholders will have the right to convert their Notes only upon the occurrence

of certain events .

From and after September 1, 2026, noteholders may convert their Notes at any time at their election until the close

of business on the second scheduled trading day immediately before the maturity date.

The Company will settle conversions by paying or

delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s

The initial conversion rate is 13.1277 shares of common stock per $ 1 thousand principal amount of Notes, which represents an

initial conversion price of approximately $ 76.17 per share of common stock.

The conversion rate and conversion price will be subject

to customary adjustments upon the occurrence of certain events.

In addition, if certain corporate events that constitute a “Make-Whole

Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased

for a specified period of time.

July 28, 2022, the Company entered into a Revolving Credit and Security Agreement (the “Agreement”) with Silvergate Bank

(the “Bank”) pursuant to which Silvergate had agreed to loan the Company up to $ 100,000 thousand on a revolving basis pursuant

to the terms of the Agreement.

This facility refinanced and replaced an existing $ 100,000 thousand facility the Company had in place

with the Bank.

On the same date, the Company also entered into a $ 100,000 thousand principal term loan facility (the “Term Loan”)

with Silvergate.

See Form 10-K for the year ended December 31, 2022 for the terms of the facilities set forth in the Agreement and the

February 6, 2023, the Company provided Silvergate Bank with the required 30-day notice stating the Company’s intent to prepay the

outstanding balance on its term loan facility as well as the Company’s intent to terminate the term loan facility.

and Silvergate subsequently agreed to also terminate the revolving line of credit (“RLOC”) facility.

On March 8, 2023, the

term loan prepayment was completed, and the Company’s term loan and RLOC facilities with Silvergate Bank were terminated.

Company leases office space in the United States under operating lease agreements.

Office space is the Company’s only material

underlying asset class under operating lease agreements.

The Company also entered into an arrangement with

Applied Blockchain for the use of energized cryptocurrency mining facilities under which the Company pays for electricity per megawatt

based on usage.

The Company has determined that it has embedded operating leases at two of the facilities governed by this arrangement

that commenced in January and March 2023, and has elected not to separate lease and non-lease components.

Payments made for these two

operating leases are therefore entirely variable and are based on usage of electricity, and the Company therefore does not record a right-of-use

asset or lease liability associated with the leases.

Variable lease cost during the three months ended March 31, 2023 are disclosed in

the table below.

Office space and mining facilities comprise the Company’s material underlying asset classes under operating lease

The Company has no material finance leases.

June 1, 2018, the Company rented its corporate office at 1180 North Town Center Drive, Suite 100, Las Vegas, Nevada 89144, on a month-to-month

February 14, 2022, the Company rented an office located at Tower 101, 101 NE Third Avenue, Fort Lauderdale, Florida, 33301, for a term

of 63 months.

March 1, 2022, the Company rented an office located at 300 Spectrum Center Drive, Irvine CA, 92618, for a term of 24 months.

May 1, 2022, the Company rented warehouse space located at 3306 5 th Street SE, East Wenatchee, Washington, 98802, for a term

of 24 months.

Effective September 21, 2022, the Company rented warehouse space located at 512 N.

Douglas Ave., Oklahoma City, OK, 73106, for a term

of 36 months.

of September 30, 2022, the Company’s right-of-use (“ROU”) assets and total lease liabilities were $ 1.4 million and

$ 1.1 million, respectively for leases in the United States.

of March 31, 2023, the Company’s right-of-use (“ROU”) assets and total lease liabilities were $ 1,180 thousand and $ 1,245

thousand, respectively, for leases in the United States.

As of December 31, 2022, the Company’s ROU assets and total lease liabilities

The Company has made payments and amortized the right-of-use assets totaling $ 29 thousand and $ 48 thousand, respectively, for

the three- and nine-month periods ending September 30, 2022.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

were $ 1,276 thousand and $ 1,343 thousand, respectively.

The Company has amortized right-of-use assets totaling $ 84 thousand and $ 110

thousand for the three months ended March 31, 2023, and year ended December 31, 2022, respectively.

lease costs are recorded on a straight-line basis within operating expenses.

1 unchanged sentence

the following:

OF COMPONENTS OF LEASE COST

the Nine Months Ended

lease expense

lease rent expense

the Three Months Ended

lease expense

lease rent expense

information regarding the Company’s leasing activities as a lessee is as follow:

OF MINIMUM LEASE PAYMENTS

the Nine Months Ended

cash flows from operating leases

Weighted-average

remaining lease term – operating leases

Weighted-average

discount rate – operating leases

of September 30, 2022, contractual minimum lease payments are as follows for the next five years.

OF CONTRACTUAL MINIMUM LEASE

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

January 14, 2021, Plaintiff Michael Ho (“Plaintiff” or “Ho”) filed a Civil Complaint for Damages and

Restitution (“Complaint”) against the Company and 10 Doe Defendants.

The Complaint alleges six causes of action against

the Company, (1) Breach of Written Contract;

(2) Breach of Implied Contract;

(3) Quasi-Contract;

(4) Services Rendered;

Intentional Interference with Prospective Economic Relations;

and (6) Negligent Interference with Prospective Economic Relations,

which is the one plead against “all Defendants” and is most likely to involve later named defendants.

The claims arise

from the same set of facts, Ho alleges that the Company profited from commercially sensitive information he shared with the Company

and then it refused to compensate him for his role in securing the acquisition of a supplier of energy for the Company.

22, 2021, the Company responded to Mr.

Ho’s Complaint with a general denial and the assertion of applicable affirmative

Then, on February 25, 2021, the Company removed the action to the United States District Court in the Central District of

California, where the action remains pending.

The Company filed a motion for summary judgment/adjudication of all causes of action.

On February 11, 2022, the Court granted the motion and dismissed Ho’s 2nd, 5th and 6th causes of action.

substantially closed.

The Court held a pre-trial conference on February 24, 2022, where it vacated the March 3, 2022 trial date and

ordered the parties to meet and confer on a new trial date.

The Court discussed the various theories of damages maintained by the

In its ruling on the summary judgment motion and at the pre-trial conference on February 24, 2022, the Court noted that a

jury is more likely to accept $ 150,000

as an appropriate damages amount if liability is found, as opposed to the various theories espoused by Ho that result in

multi-million-dollar recoveries.

Due to outstanding issues of fact and law, it is impossible to predict the outcome at this time;

however, after consulting legal counsel, the Company is confident that it will prevail in this litigation, since it did not have a

contract with Mr.

Ho and he did not disclose any commercially sensitive information under any mutual nondisclosure agreement that

was used to structure any joint venture with energy providers.

Trial is set to begin in February 2023.

October 6, 2020, the Company entered into a series of agreements with multiple parties to design and build a data center for up to 100-megawatts

in Hardin, MT.

In conjunction therewith, the Company filed a Current Report on Form 8-K on October 13, 2020.

The 8-K disclosed that,

pursuant to a Data Facility Services Agreement, the Company issued 6,000,000 shares of restricted Common Stock, in transactions exempt

from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

During the quarter ended September 30, 2021, the Company

and certain of its executives received a subpoena to produce documents and communications concerning the Hardin, Montana data center

facility described in our Form 8-K dated October 13, 2020.

We understand that the SEC may be investigating whether or not there may have

been any violations of the federal securities law.

We are cooperating with the SEC.

Class Action Complaint

December 17, 2021, a putative class action complaint was filed in the United States District Court for the District of Nevada, against

the Company and present and former senior management.

The complaint alleges securities fraud related to the disclosure of an SEC investigation

previously made by the Company on November 15, 2021.

Plaintiff Tad Schlatre served the complaint on the Company on March 1, 2022.

September 12, 2022, the court appointed Carlos Marina as lead plaintiff.

On October 21, 2022, lead plaintiff voluntarily dismissed the

complaint without prejudice.

SCHEDULE OF COMPONENTS OF LEASE COST

(in thousands)

For the Three Months Ended March 31,

(in thousands)

Operating leases

Operating lease cost

Operating lease expense

Short-term lease rent expense

Variable lease cost

Total rent expense

information regarding the Company’s leasing activities as a lessee is as follows:

SUMMARY OF MINIMUM LEASE PAYMENTS

For the Three Months Ended March 31,

(in thousands, except term and discount rate data)

Operating cash flows from operating leases

Weighted-average remaining lease term – operating leases

Weighted-average discount rate – operating leases

SCHEDULE OF LEASE LIABILITY MATURITY

(in thousands)

2023 (remaining)

12 – LEGAL PROCEEDINGS

North Bankruptcy

September 22, 2022, Compute North Holdings, Inc.

(currently d/b/a Mining Project Wind Down Holdings, Inc.) and certain of its affiliates

(collectively, “Compute North”) filed for chapter 11 bankruptcy protection.

Compute North provided operating services to

the Company and hosted our mining rigs at multiple facilities.

We delivered miners to Compute North, which then installed the mining

rigs at those facilities, operated and maintained the mining rigs, and provided energy to keep the miners operating.

During the course

of the chapter 11 cases, Compute North sold substantially all of their assets in a series of 363 sale transactions, including Compute

North’s ownership interests in non-debtor entities that own or partially-own facilities that house our miners.

November 23, 2022, the Company and certain of its affiliates timely filed proofs of claim asserting various claims against Compute North,

(i) claims arising under hosting agreements between the Company and Compute North LLC;

(ii) claims arising under that certain

Senior Promissory Note, dated as of July 1, 2022, by and between the Company, as Lender, and Compute North LLC, as Borrower;

arising from the breach of a letter of intent between us and Compute North LLC;

and (iv) claims for daily lost revenue, profits and other

damages against Compute North.

February 9, 2023, the Bankruptcy Court approved a settlement stipulation between the Company and Compute North, pursuant to which the

proofs of claim filed by the Company and certain of its affiliates were resolved, and the Company received a single allowed unsecured

claim against Compute North LLC in the amount of $ 40,000,000 and its Preferred Equity Interests in Compute North Holdings, Inc.

amount of 39,597 shares of Series C Preferred Stock was confirmed.

In exchange, the Company agreed to vote in favor of Compute North’s

chapter 11 plan.

February 16, 2023, the Bankruptcy Court confirmed Compute North’s chapter 11 plan (the “Plan”), pursuant to which Compute

North will liquidate its remaining assets and distribute proceeds arising therefrom in accordance with the waterfall set forth in the

In its disclosure statement filed on December 19, 2022, the Compute North Debtors projected that holders of allowed general unsecured

claims could recover anywhere between 8% to 65% on their claims, while holders of preferred equity interests are expected to recover

nothing on their interests .

The Plan became effective on March 31, 2023.

At this time, the Company cannot predict the quantum of its

potential recovery on account of its allowed general unsecured claim and preferred equity interests or the timing of when it would receive

any distributions under the Plan on account of its claims and interests.

February 18, 2022, a shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against

12 unchanged sentences

June 1, 2022, the Court entered an order consolidating the two derivative actions.

A June 13, 2022 scheduling order provides for plaintiffs

A June 13, 2022 scheduling order provided for plaintiffs

to file a consolidated complaint and for renewed motions to dismiss the consolidated shareholder derivative complaint.

The consolidated

complaint has not yet been filed.

the opinion of management, after consulting legal counsel, the ultimate disposition of these matters will not have a material adverse

effect on the Company and its related entities combined financial position, results of operations, or liquidity.

North Bankruptcy

September 22, 2022, Compute North filed

for chapter 11 bankruptcy protection.

Compute North provides operating services to the Company and hosts our equipment in multiple facilities.

We deliver miners to Compute North, which then installs the equipment in several facilities, operates and maintains the equipment, and

provides energy to keep the miners operating.

In chapter 11, Compute North is currently seeking to sell substantially all of its assets,

including its direct and indirect ownership interests in the facilities that house the Company’s miners.

Compute North may also

seek to assume and assign the Compute North agreements to which the Company is party to one or more third-party purchasers of Compute

North’s assets or it may seek to reject such agreements.

Accordingly, Compute North’s chapter 11 cases could cause a disruption

in services provided by Compute North to us and, therefore, could have an adverse effect on our operations in the facilities managed

by Compute North.

DIGITAL HOLDINGS, INC.

AND SUBSIDIARIES

TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

this stage of Compute North’s chapter 11 cases, it is difficult to predict whether Marathon will receive any meaningful recovery

on account of its claims.

11 – RELATED PARTY MATTERS

September 23, 2022, the Company made an incremental $ 30

million investment in Auradine, Inc.,

bringing its total holdings in Auradine to $ 35.5

million based upon a previously issued and disclosed

SAFE instrument.

Said Ouissal, a director of the Company, owns approximately 10 %

of the issued and outstanding shares of Auradine, and Fred Thiel, the Company’s Chairman and CEO, sits on Auradine’s Board

of Directors.

On November 3, 2022, the Company’s Board met and determined that Said Ouissal is no longer deemed to be an independent

director of the Company.

On November 22,

2022, before a consolidated complaint was due, plaintiffs voluntarily dismissed both actions without prejudice.

On November 23, 2022,

both actions were closed.

Class Action Complaint

December 17, 2021, a putative class action complaint was filed in the United States District Court for the District of Nevada, against

the Company and present and former senior management.

The complaint alleges securities fraud related to the disclosure of an SEC investigation

previously made by the Company on November 15, 2021.

Plaintiff Tad Schlatre served the complaint on the Company on March 1, 2022.

September 12, 2022, the court appointed Carlos Marina as lead plaintiff.

On October 21, 2022, lead plaintiff voluntarily dismissed the

complaint without prejudice.

On December 7, 2022, the action was closed.

March 30, 2023, a putative class action complaint was filed in the United States District Court for the District of Nevada, against the

Company and present and former senior management.

The complaint alleges securities fraud related to the Company’s announcement

of accounting restatements on February 28, 2023.

Plaintiff has not served the complaint on the Company.

October 6, 2020, the Company entered into a series of agreements with multiple parties to design and build a data center for up to 100-megawatts

in Hardin, MT.

In conjunction therewith, the Company filed a Current Report on Form 8-K on October 13, 2020.

The 8-K discloses that,

pursuant to a Data Facility Services Agreement, the Company issued 6,000,000 shares of restricted Common Stock, in transactions exempt

from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

During the quarter ended September 30, 2021, the Company

and certain of its executives received a subpoena to produce documents and communications concerning the Hardin, Montana data center

facility described in our Form 8-K dated October 13, 2020.

The Company received an additional subpoena from the SEC on April 10, 2023,

relating to, among other things, transactions with related parties.

We understand that the SEC may be investigating whether or not there

may have been any violations of the federal securities law.

We are cooperating with the SEC.

January 14, 2021, Plaintiff Michael Ho (“Plaintiff” or “Ho”) filed a Civil Complaint for Damages and Restitution

(“Complaint”) against the Company.

The Complaint alleges six causes of action against the Company, (1) Breach of Written

(2) Breach of Implied Contract;

(3) Quasi-Contract;

(4) Services Rendered;

(5) Intentional Interference with Prospective Economic

and (6) Negligent Interference with Prospective Economic Relations.

The claims arise from the same set of facts.

that the Company profited from commercially-sensitive information he shared with the Company and then it refused to compensate him for

his role in securing the acquisition of a supplier of energy for the Company.

On February 22, 2021, the Company responded to Mr.

Complaint with a general denial and the assertion of applicable affirmative defenses.

Then, on February 25, 2021, the Company removed

the action to the United States District Court in the Central District of California, where the action remains pending.

The Company filed

a motion for summary judgment/adjudication of all causes of action.

On February 11, 2022, the Court granted the motion and dismissed

Ho’s 2nd, 5th and 6th causes of action.

Discovery is substantially closed.

The Court held a pre-trial conference on February 24,

2022, where it vacated the March 3, 2022 trial date and ordered the parties to meet and confer on a new trial date.

The Court discussed

the various theories of damages maintained by the parties.

In its ruling on the summary judgment motion and at the pre-trial conference

on February 24, 2022, the Court noted that a jury is more likely to accept $ 150,000 as an appropriate damages amount if liability is

found, as opposed to the various theories espoused by Ho that result in multi-million-dollar recoveries.

Due to outstanding issues of

fact and law, it is impossible to predict the outcome at this time;

however, after consulting legal counsel, the Company is confident

that it will prevail in this litigation, since it did not have a contract with Mr.

Ho and he did not disclose any commercially-sensitive

information under any mutual nondisclosure agreement that was used to structure any joint venture with energy providers.

The trial has

been rescheduled for January 29, 2024, and is scheduled for four days, including jury selection.

13 – RELATED PARTY TRANSACTIONS

September 23, 2022, the Company made an incremental $ 30,000 thousand investment in Auradine, Inc., bringing its total holdings in Auradine

to $ 35,500 thousand based upon a previously issued and disclosed SAFE instrument.

Said Ouissal, a director of the Company, currently

owns approximately 5 % of the issued and outstanding shares of Auradine, and Fred Thiel, the Company’s Chairman and CEO, sits on

Auradine’s Board of Directors.

On November 3, 2022, the Company’s Board met and determined that Said Ouissal was no longer

deemed to be an independent director of the Company.

As a result, Mr.

Ouissal stepped down from the Audit and Compensation Committees.

12 – REVISION OF CERTAIN PRIOR PERIOD AMOUNTS

We have revised amounts reported in previously issued financial statements

for the periods presented in this Quarterly report on Form 10-Q related to an immaterial error.

The error relates to the non-consolidation

of an investment fund as described below.

We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance

with SEC Staff Accounting Bulletins No.

108 and, based upon quantitative and qualitative factors, determined that the errors

were not material to the previously issued financial statements and disclosures included in our Annual Reports on Form 10-K for the years

ended December 31, 2021, or for any quarterly periods included therein or through our Quarterly Report on Form 10-Q for the quarterly

period ended March 31, 2022.

January 25, 2021, the Company entered into a limited partnership agreement with NYDIG Digital Assets Fund III, LP

(“Fund”) whereas the Fund purchased approximately 4,812.66

bitcoin at an aggregate purchase price of $ 150

On June 10, 2022 the company withdrew approximately 4,768.5

bitcoin from the investment fund and the Fund was subsequently terminated.

During the period of time when the company held its

investment in the Fund, it accounted for the results of the Fund, in their entirety, as a single line item on the balance sheet

(“Digital currencies held in fund”), statements of operations and statements of cash flows (“Change in fair value

of digital currencies held in fund”).

Subsequent to the termination of the Fund, the Company concluded that this accounting

was incorrect and that it must consolidate the Fund, showing any assets, liabilities and expenses of the Fund as separate components

of its financial statements.

correction of this error has resulted in revisions to certain line items on the balance sheet as of December 31, 2021, the

statements of operations for the three and nine months ended September 30, 2021, and the statement of cash flows for the nine-month

period ended September 30, 2021.

A reconciliation of the various financial statement captions that have been revised from the

previous period presentation follows:

OF RESTATEMENTS AND RECLASSIFICATIONS

Sheet as of December 31, 2021

Cash and cash equivalents

currencies held in fund

Investment fund

( 223,778,545 )

Prepaid expenses and other current assets

Accrued expenses

of Operations

months ended September 30, 2021

reported / reclassified (1)

and administrative expenses

( 98,996,339 )

( 99,235,984 )

( 158,763,196 )

( 159,411,404 )

Change in fair value of investment in NYDIG fund

( 41,850,203 )

( 58,765,274 )

Realized and unrealized gains (losses) on digital currencies held in fund

( 64,283,755 )

( 22,436,493 )

( 106,717,049 )

( 47,955,229 )

of Cash Flows

months ended September 30, 2021

and unrealized gains on digital currencies held in fund

( 59,410,028 )

Change in fair value of investment securities

( 58,765,274 )

payable and accrued expenses

Net cash used in operating activities

( 43,914,493 )

( 44,357,170 )

Sale of digital currencies in investment fund

Net cash used in investing activities

( 372,223,134 )

( 371,780,457 )

(1) See reclassifications in Note 2

Ouissal stepped down from all Board Committees.

14 – SUBSEQUENT EVENTS

During October 2022, the Company borrowed an additional $ 50 million under its RLOC facility for general corporate purposes

and provided an additional 3,993 bitcoin as collateral for this borrowing.

This increased the Company’s collateral balance to 7,821

On November 9, 2022, bitcoin prices declined to a new yearly low on concerns of financial instability in the crypto industry.

As a result, the Company was required to provide an additional 1,669 bitcoin (valued

at $16,212.50 per bitcoin) as collateral for its $ 50 million RLOC and $ 50 million term loan borrowings, bringing its total collateral

balance to 9,490 bitcoin (approximately $ 153.9 million).

The Company’s total bitcoin holdings as of November 9, 2022, are approximately

11,440 bitcoin, of which 1,950 (approximately $ 31.6 million) are unrestricted.

Given the uncertainty around bitcoin prices in the near-term,

the Company has decided to delay previously announced plans to refinance the RLOC with a term loan during the month of November.

enables the Company to retain the optionality to repay the RLOC borrowings in the near-term versus committing to a two-year term loan

borrowing which would carry prepayment penalties.

The Company retains an option to draw an additional $50 million on the term loan through

April of 2023.

The Company has evaluated other subsequent

events through the date the consolidated financial statements were available to be issued and has concluded that no such events or

transactions took place that would require disclosure except as disclosed above and in Note 6 – Compute North Bankruptcy, Note

7 – Legal Reserves and Note 11 – Related Party matters.

Company has evaluated other subsequent events through the date the consolidated financial statements were available to be issued and

has concluded that no such events or transactions took place that would require disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements